STATE OF CALIFORNIA

Public Utilities Commission

M e m o r a n d u m

July 23, 2008

Office of Governmental Affairs (OGA) - Sacramento

Subject:

SB 53 (Ducheny): Department of Railroads

As Amended June 19, 2008

LEGISLATIVE SUBCOMMITTEE RECOMMENDATION: OPPOSE.

SUMMARY OF BILL:

This bill would create a new California State Agency, the Department of Railroads, within the Business, Housing and Transportation (BHT) Agency, under the California Government Code. The bill would transfer to the new department responsibility for various state railroad programs currently administered by other agencies, including the CPUC's rail safety programs.

SUMMARY OF SUPPORTING ARGUMENTS FOR RECOMMENDATION:

· The standard for railroad safety, rail transit safety, and rail crossing safety would be lessened by combining safety oversight in an agency that is also responsible for operating Amtrak, High Speed Rail, and the statewide promotion, planning, scheduling, and financing of rail infrastructure build out. The safety "gold standard" set by the CPUC, the NTSB, the NRC, and others, places safety oversight responsibilities in a separate organization that is independent and focuses solely on safety.

· State agency coordination of the planning and financing of rail infrastructure improvements may need improvement, but differing local and state perspectives on issues of local land use and issues of local funding priorities appear to be larger issues that will not be overcome by a reorganization of state agencies.

· As written, the proposed bill would remove the CPUC's rail crossing safety programs, but would also likely remove the CPUC's freight and passenger railroad safety and rail transit safety programs. These programs are extensive programs with Public Utilities Code (PU Code) performance mandates and with responsibility for both state and federal rail safety regulations. These programs include formal partnerships with the Federal Railroad Administration and the Federal Transit Authority.

· Although the full range of the effect the proposed legislation would have on the Commission is unclear, it would, at least, remove the Commission's exclusive jurisdiction over public utilities under PU Code Sections 208 and 209, and Article 12, Sections 3, 4, 9, 22, and 23 of the California Constitution, common carriers under PU Code Section 211, and Article 12, Sections 3, 4, 9, 22, and 23 of the California Constitution, railroads under PU Code Sections 229 and 230, and Article 12, Sections 3, 4, 9, 22, and 23 of the California Constitution, and highway-rail crossings under PU Code Sections 1201 et seq. It is possible that the proposed bill would remove "railroads" from the "common carrier" jurisdiction of the Commission under PU Code Section 211 and Article 12, Sections 3, 4, 9, 22, and 23 of the California Constitution.

· The standard for railroad safety, rail transit safety, and rail crossing safety would be lessened by combining safety oversight in an agency that is also responsible for operating Amtrak, High Speed Rail, and the statewide promotion, planning, scheduling, and financing of rail infrastructure build out. The safety "gold standard" set by the CPUC, the NTSB, the NRC, and others, places safety oversight responsibilities in a separate organization that is independent and focuses solely on safety.

o Best practices dictate that the operations of railroads, promotional activities, and the planning, scheduling, operations, and financing be in a separate decision-making organization from safety oversight. The proposed legislation would combine these activities in a single agency.

o The CPUC firmly believes that safety oversight functions must be separate from, but also coordinated with, these promotional activities. Rail safety oversight is the CPUC's area of expertise and has been since 1879.

o The CPUC firmly believes that these safety functions are best performed by a constitutionally separate agency that has adjudicative, rule-making, investigatory, and law enforcement authority. The CPUC has a well-established organizational infrastructure of administrative law judges, rules of practice and procedure, an adjudicatory body of independent Commissioners with fixed terms, regulatory enforcement practices and staff - all integrated for a common purpose: a fact-finding, due-process dependent, and expert-staffed autonomous decision-making safety organization.

o The "gold standard" for safety oversight is such decision-making capacity, expertise, and independence. For example, the nation's premiere accident investigation agency, the National Transportation Safety Board, was insulated from conflicts by ensuring its independence.

o The NTSB opened its doors on April 1, 1967. Although independent, it relied on the U.S. Department of Transportation (DOT) for funding and administrative support. In 1975, under the Independent Safety Board Act, all organizational ties to DOT were severed. The NTSB is not part of DOT, or affiliated with any of its modal agencies.1 In 2003, Alexander T. Wells and Clarence C. Rodrigues, writing in the book Commercial Aviation Safety stated:

o "With the passage of the Independent Safety Act of 1974, Congress made the NTSB completely independent outside the DOT because "no federal agency can properly perform such functions unless it is totally separate and independent from any other ... agency of the United States". Because the DOT is charged with both the regulation and the promotion of transportation in the United States, and accidents may suggest deficiencies in the system, the NTSB's independence is necessary for objective oversight."

o Furthermore, after the initial regulatory failures of the Atomic Energy Commission (AEC), the Nuclear Regulatory Commission (NRC) was created to provide regulatory independence. From the Nark's website:

o By 1974, the Ace's regulatory programs had come under such strong attack that Congress decided to abolish the agency. Supporters and critics of nuclear power agreed that the promotional and regulatory duties of the AEC should be assigned to different agencies. The Energy Reorganization Act of 1974 created the Nuclear Regulatory Commission; it began operations on January 19, 1975.2

o In another classic example, the underlying cause of NASA's Challenger tragedy was determined to be the rocket booster manufacturer's systemic conflict between trying to meet a schedule and ensuring safety. With the same decision makers responsible for both functions, when it was time to abort or complete the launch, it led to the infamous quote, "take off your engineer hats and put on your management hats."3 Thus engineering safety issues regarding the o-ring seals were ignored in deference to contractual scheduling concerns and their financial impact. Even though the engineers advised against launching because of known problems with the o-rings, the conflicting managerial scheduling and financial concerns led the decision-makers to go ahead with the tragic launch. In response to this accident, NASA subsequently revamped its policies to provide an independent safety decision-making role.

o The new department would not be able to efficiently duplicate the CPUC's decision-making infrastructure as described above. But more importantly, the new organization would take a step backward in juxtaposing safety and promotion in within the same decision-making organization.

· State agency coordination of the planning and financing of rail infrastructure improvements may need improvement, but differing local and state perspectives on issues of local land use and issues of local funding priorities appear to be larger issues that will not be overcome by a reorganization of state agencies.

o While the problem the bill is intended to address is not discussed, it is at least implied that the problem is lack of state-level coordination. Our experience is that the primary problem in statewide transportation planning is not lack of state-level coordination. While some inefficiency and ineffectiveness in planning and financing may exist at the statewide level, we note that the complexities of local land-use priorities and local financing priorities may be the larger problem for planning and development.

o The CPUC has not developed a position about whether the operation of railroads on both the Amtrak routes and the California High Speed Rail routes should be combined into a statewide transportation planning organization. However, the CPUC believes that potential conflicts of interest in combining these two functions must be carefully scrutinized, and that a change of this scale should be examined closely to find out whether other solutions would better address the most difficult problems - those experienced at the local level.

o "By direct grant from the Constitution, the Commission was empowered to prescribe uniform systems of accounts and fix rates for railroads "and other transportation companies", examine records, hear and determine complaints, issue subpoenas, and take testimony and punish for contempt...Legislative and judicial functions have been united in a single agency" (Roderick B. Cassidy, Public Utility Regulation in California, Commentary to the Public Utilities Code, 1954, pp. 2-3.) Certain of the Commission's powers are derived by direct grant from the Constitution which created it.4 The Legislature is without power, either by silence or by direct enactment, to modify, curtail, or abridge the constitutional grant of power.

It is not and will not be questioned but that if the constitution has vested such power, it is not within the legislative power, either by its silence or by direct enactment, to modify, curtail, or abridge this constitutional grant."

o However, the Legislature may enact legislation to facilitate the exercise of those powers. "Broadly speaking, the Commission's many and varied powers and duties relate to the fixing of rates and supervision of service, including matters involving public safety...." (Public Utility Regulation in California, supra at p. 5.)

"All railroads, canal, and other transportation companies are declared to be common carriers, and subject to legislative control. . . ." Section 23, as adopted and unchanged by the 1914 amendment, provides:

"Every private corporation, and every individual or association of individuals, owning, operating, managing, or controlling any commercial railroad, interurban railroad, street railroad, canal, pipe line, plant, or equipment, . . . within this State, for the transportation or conveyance of passengers . . . or freight of any kind, . . . either directly or indirectly, to or for the public, and every common carrier, is hereby declared to be a public utility subject to such control and regulation by the . . . Commission as may be provided by the Legislature, and every class of private corporations, individuals, or association of individuals hereafter declared by the Legislature to be public utilities shall likewise be subject to such control and regulation. The . . . Commission shall have and exercise such power and jurisdiction to supervise and regulate public utilities, in the State of California, and to fix the rates to be charged for commodities furnished, or services rendered by public utilities as shall be conferred upon it by the Legislature, and the right of the Legislature to confer powers upon the . . . Commission respecting public utilities is hereby declared to be plenary and to be unlimited by any provision of this Constitution. . . . Nothing in this section shall be construed as a limitation upon any power conferred upon the . . . Commission by any provision of this Constitution now existing or adopted concurrently herewith [emphasis added]."

People v. Western Air Lines, supra,at 636.

o Under Article 12, Section 3, of the California Constitution, "a line, plant, or system for the transportation of people or property...and common carriers" are "public utilities." This Constitutional provision "extends, by its terms, to railroad corporations and `transportation companies.' This should be construed to extend the supervision of the commission to all persons engaged in the business of transportation, whether as corporations, joint-stock companies, partnerships, or individuals, and so it has been construed by legislative enactment." (Moran v. Ross (1889) 79 Cal. 159, 163.)

o A 1911 amendment to the Constitution, Article 12, Section 23, reaffirmed that "for the transportation or conveyance of passengers . . . and every common carrier, is hereby declared to be a public utility." (Although Article 12, Section 23, was removed from the Constitution, its substance is retained in the present Constitution pursuant to Section 9 of Article XII.5 Under Article 12, Section 4, "The commission may fix rates and establish rules for the transportation of passengers and property by transportation companies...."

o Further, Section 22 of Article XII of the Constitution as amended in 1911, (retained by Section 9 of Article 12 in 1974) provided the Commission with jurisdiction over railroads "and other transportation companies."

o The Constitution provides that "[n]o provision of this Constitution shall be construed as a limitation upon the authority of the Legislature to confer upon the railroad commission additional powers of the same kind or different from those conferred herein which are not inconsistent with the powers conferred upon the . . . commission in this Constitution, and the authority of the Legislature to confer such additional powers is expressly declared to be plenary and unlimited by any provision of this Constitution." (Cal. Const., Article XII, sec. 22.) This provision remained in the Constitution verbatim until the constitutional amendment of 1974 which retains the provision through Section 9 of Article XII which provides "[t]he provisions of this article restate all related provisions of the Constitution in effect immediately prior to the effective date of this amendment and make no substantive change.

The CPUC's constitutional authority includes jurisdiction over rail crossing safety.

o The safety of rail crossings is an area of statewide concern and under the exclusive control of the Commission.6 "[T]he subject of abolishing...grade crossings by the physical closing thereof is germane to the regulation of a railroad corporation performing state-wide or more than local service; that "the Railroad Commission has been vested with such power of regulation and control by the Constitution and by Section 43 (b) of the Public Utilities Act [emphasis added]...." (City of San Mateo v. Railroad Com. (1937) 9 Cal.2d 1, 6.)

The CPUC's constitutional authority includes jurisdiction over rail transit safety.

o Public transit guide way systems are "common carriers" under PU Code Section 211. Common carriers are "public utilities" under PU Code Section 216. "Under the Code public utilities are required to furnish such...facilities as are necessary to promote the safety, health, comfort, and convenience of patrons, employees, and the public. (PU Code Section 451.)...The Commission shall determine the character of facilities necessary to meet public requirements (PU Code Section 730), may require changes or additions in plant and equipment, joint use of facilities, installation of safety devices, and may fix reasonable standards, practices, measurements, or service. (PU Code Section 761-772.)" (Public Utility Regulation in California, supra at p. 11.)

PROGRAM BACKGROUND:

· The CPUC's rail crossing, railroad operations and rail transit safety programs are held in high regard across the nation, and are looked to as models to emulate. The Commission has been the state's expert in rail safety since the late 1800's when it was the Railroad Commission.

· Current law provides that the planning, financing, and operation of the California High Speed Rail system are the purview of the California High Speed Rail Authority.

· Current law also provides that the Caltrans Division of Rail will operate the trains on the Amtrak routes in California including the Capitol Corridor, Cal train, Altamont Commuter Express, and Coaster. Caltrans is tasked with developing a comprehensive rail passenger system, preparing a rail passenger development plan, and working with local and regional entities in developing a comprehensive balanced transportation freight and passenger planning and policy. Caltrans also coordinates and assists various public and private transportation entities in strengthening and developing the operation of a balanced and integrated set of transportation facilities and services, maximizing the efficient and effective use of available funds, and coordinating transportation research projects of statewide interest.

LEGISLATIVE HISTORY:

None.

FISCAL IMPACT:

The PU Code funds the CPUC's freight and passenger railroad safety program activities through its jurisdiction over public utilities by imposing user fees on the railroads - independent of the state's General Fund. This bill would require shifting the funding source to the General Fund. The costs to be shifted from the CPUC to the proposed Department of Rail include:

_ Freight/passenger safety programs $ 5,088,000

_ Rail transit safety programs $ 2,988,000

_ Rail crossing safety programs $ 3,354,000

Total $11,430,000

STATUS:

This bill is set to be heard by the Assembly Transportation Committee on August 4, 2008.

3 Bioscopy, Roger (1988). Ethical decisions: Morton Thiokol and the space shuttle disaster. Address to the Student Pigwash Technology and Society Seminar Series, School of Engineering, University of California, Berkeley, March 16, 1988.

4 For example, rates of intrastate carriers by air are subject to regulation, although the Public Utilities Act contains no specific reference to airline carriers. Such carriers are "transportation companies" under the Constitution. People v. Western Air Lines, (1954) 42 Cal.2d 621.

5 "The provisions of this article restate all related provisions of the Constitution in effect immediately prior to the effective date of this amendment and make no substantive change." Cal. Const., Art. 12, § 9 (Nov. 5, 1974).

6 Northwestern Pac. R.R. Co. v. Superior Court, (1949) 34 Cal.2d 454, 458, and City of San Mateo v. Railroad Com. (1937) 9 Cal.2d 1, 9-10. See also: "Under [PU Code sections] 1201 and 1202 authorization is required for the creation of any grade crossing of a railroad and any public road or street. The Commission has exclusive power to prescribe terms of installation, use, and protection of crossings; to relocate or abolish crossings by physical closing; to require a separation of grades, and to apportion costs between railroads, the state, and political subdivisions [footnote omitted]." (Public Utility Regulation in California, supra at p. 15.)